Why should money from the Zionists be assur when usually issurei hanaah doesn’t transfer to money (with the exception of avodah zara)?
The more serious answer is that those who forbade taking money from the government wanted to distance themselves from the Zionists.
It’s hard to argue that they were wrong, as nowadays we see such a large portion of ostensibly Chareidi Yidden who are now quasi Zionists.